Why do so many Indian startups fail due diligence?

According to KPMG, nearly 25% of startup deals in India fail at due diligence. The main reasons include incomplete documentation, IP issues, inconsistent financial records, and lack of proper legal structure.

What documents do investors check during due diligence?

Investors verify incorporation documents, shareholder agreements, IP assignments, financial statements, tax returns, employee contracts, statutory registers, and compliance certificates under the Companies Act 2013.

How long does due diligence take for Indian startups?

Due diligence typically takes 4-8 weeks for early-stage deals and can extend to 12+ weeks for larger rounds. Delays often occur when documentation is incomplete or inconsistent.

Can I fix due diligence issues after getting a term sheet?

While possible, it's risky. Fixing issues after a term sheet delays closing, erodes investor confidence, and can lead to deal termination. Preparation before approaching investors is critical.

Why Indian Startups Lose Funding During Due Diligence

Rahul spent 8 months pitching investors. His deck was perfect. His traction was real. He got a term sheet from a top VC in week 12. Then due diligence started. The deal died in week 4.

The investor never said exactly what went wrong. Just "some compliance issues we couldn't resolve." Rahul spent another 6 months fixing things he didn't know were broken, trying to raise again.

By then, two competitors had raised. His burn rate caught up. The startup shut down 14 months later.

This isn't a rare story. It's the reality for 1 in 4 Indian startups.

25% Deals fail at due diligence

6-12 weeks To fix after rejection

2X Longer to raise next round

What Actually Happens During Due Diligence

Most founders think due diligence is about numbers. Revenue growth. Customer retention. Unit economics. That stuff matters, sure. But it's not what kills deals.

What kills deals is the stuff nobody talks about. The missing IP assignment from your first developer. The verbal equity promise to a co-founder who left. The GST returns you filed late in year one. The shareholder agreement that contradicts your term sheet.

What One Investor Told Us (Off The Record)

"We've walked away from three deals this year that had great metrics. One had an incomplete cap table. One had IP issues with a contractor. One had unpaid stamp duty on founder agreements. None of them knew these were problems until we asked. By then, fixing them would delay closing by 8+ weeks. We moved on."

Here's what investors actually check—and in this order:

Week 1: Legal Structure Review

Company incorporation documents, MOA/AOA, all board resolutions, complete shareholder registry, all amendments to capital structure.

Week 2: IP & Contracts

IP assignment agreements from all founders, employees, contractors. Every single person who touched your code or product.

Week 3: Financial & Compliance

3 years of financials, all tax filings, GST returns, TDS payments, statutory registers, board meeting minutes.

Week 4: Employment & Operations

Employee contracts, consultant agreements, customer contracts, vendor agreements, any ongoing litigation.

If anything is missing, inconsistent, or raises a red flag, the clock stops. Questions get asked. Founders scramble. Investors get nervous.

The 7 Silent Deal Killers

After watching 100+ funding rounds, we've seen the same issues kill deals over and over. Not once or twice. Every single time they appear.

1. Incomplete IP Assignment

What it looks like: Your CTO joined before incorporation. Or you hired contractors who built v1. Or a co-founder left without signing anything.

Why it kills deals: Investors need to know the company actually owns what it's selling. If there's any doubt about IP ownership, the deal stops. Full stop.

The fix: Every person who has ever written code, designed features, or created content for your company needs to have signed an IP assignment agreement. No exceptions. Including co-founders who left.

2. Verbal Equity Promises

What it looks like: You told your first employee they'd get 2% equity. Or promised your advisor shares. Nothing in writing. Just "we'll do it later."

Why it kills deals: Undocumented equity claims are landmines. They could explode into legal disputes after funding. No investor wants that risk.

The fix: Formalize every equity arrangement. If you promised it, document it. If you can't honor it, negotiate a settlement and get a release signed.

3. Inconsistent Shareholder Agreements

What it looks like: Your founders' agreement says one thing. Your previous investor's SHA says another. Your term sheet says a third thing.

Why it kills deals: Lawyers can't clear inconsistent agreements. They need to know what actually governs the company. Contradictions mean uncertainty. Uncertainty means no funding.

The fix: Have a lawyer review ALL your agreements for consistency before starting due diligence. Fix contradictions preemptively.

4. Missing or Invalid Stamp Duty

What it looks like: You signed agreements but never paid stamp duty. Or paid it in the wrong state. Or paid too little.

Why it kills deals: Unstamped agreements are legally unenforceable. Investors need enforceable contracts. This isn't optional.

The fix: Get every agreement properly stamped in the state where it was executed. Pay penalties if needed. Do it before due diligence starts.

5. Irregular Financial Records

What it looks like: Your books show revenue. Your bank statements show different numbers. Or you haven't filed tax returns on time. Or your TDS payments are incomplete.

Why it kills deals: Financial irregularities signal either incompetence or dishonesty. Both are deal killers. Investors trust numbers—when they can't, they walk.

The fix: Clean up your books. File all pending returns. Pay all pending taxes. Reconcile every discrepancy. Hire a good CA if you don't have one.

6. Outdated Statutory Registers

What it looks like: Your statutory registers haven't been updated since incorporation. Or board meeting minutes are missing. Or shareholder details are incomplete.

Why it kills deals: The Companies Act 2013 mandates these records. Missing registers suggest governance problems. Investors see chaos.

The fix: Update and maintain all statutory registers. Document all board meetings properly. This should be ongoing, not a pre-funding scramble.

7. Undisclosed Litigation or Disputes

What it looks like: There's an ongoing dispute with a former co-founder. Or a customer threatened legal action. Or you have a GST notice pending. You didn't mention it because "it's not serious."

Why it kills deals: Undisclosed liabilities are massive red flags. Even if the dispute is minor, hiding it destroys trust. Investors wonder what else you're not telling them.

The fix: Disclose everything. Let investors assess the risk. Hiding issues always backfires.

Don't Let Due Diligence Kill Your Deal

We help startups prepare for due diligence before they start fundraising. Clean structure. Complete documentation. Zero surprises.

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The Real Cost of Getting This Wrong

Let's talk numbers. Real numbers from startups we've worked with.

Scenario 1: The Fixable Deal
Startup has a term sheet. Due diligence reveals IP issues and missing statutory compliance. Investor agrees to wait while issues are fixed. Takes 10 weeks. Deal closes at 15% lower valuation because "risk premium." Cost: Dilution plus 3 months of runway burned during fix.

Scenario 2: The Terminated Deal
Startup has a term sheet. Due diligence reveals contradictory shareholder agreements and unpaid stamp duty. Investor says "fix these and we'll reconsider." Takes 16 weeks to fix. By then, investor has moved on to another deal. Startup spends 6 more months raising. Burns another 9 months of runway. Finally raises at 30% lower valuation. Cost: Massive dilution plus near-death experience.

Scenario 3: The Prevented Problem
Startup fixes all compliance issues 4 months before fundraising starts. Due diligence takes 5 weeks. No surprises. Deal closes at proposed valuation. Cost: Legal and compliance fees (fraction of dilution cost).

₹8-15L Cost to fix after term sheet

10-16 weeks Time lost fixing issues

15-30% Extra dilution from delays

When to Actually Prepare (Not When You Think)

Most founders start preparing for due diligence after getting a term sheet. This is backwards.

Here's when smart founders actually prepare:

6 Months Before Fundraising

This is when you should audit your entire legal and compliance structure. Fix everything that's broken. Document everything that's verbal. Clean up everything that's messy.

Why? Because fixing issues takes time. And you don't want to be fixing while fundraising or during due diligence.

When you're 6 months out from fundraising, here's your preparation timeline:

The 6-Month Due Diligence Prep Roadmap

Months 6-5: Legal Structure Audit

Review all incorporation documents, board resolutions, shareholder agreements. Identify inconsistencies. Fix contradictions. Update outdated clauses.

Months 5-4: IP & Contracts Cleanup

Get IP assignments from everyone who ever touched your product. Formalize verbal agreements. Clean up employment contracts. Fix contractor relationships.

Months 4-3: Financial & Compliance

Update books. File pending returns. Pay pending taxes. Reconcile all discrepancies. Get clean financials from your CA.

Months 3-2: Statutory Registers & Governance

Update all statutory registers. Ensure all board meetings are properly documented. Fix corporate governance gaps.

Months 2-1: Virtual Data Room Setup

Organize all documents. Create a clean, organized VDR. Make sure everything is accessible and properly categorized.

Month 1: Pre-DD Audit

Have an external lawyer do a mock due diligence. Find remaining issues. Fix them before you start fundraising.

The Trap of "We'll Do It Later"

Every founder says this about compliance. "We'll fix it when we raise." Problem is, you can't raise until you fix it. It's a catch-22 that burns months and kills momentum.

What "Due Diligence Ready" Actually Looks Like

When you're truly ready for due diligence, here's what your startup looks like:

Your Legal Structure
Every document is consistent. Every agreement is stamped. Every board resolution is documented. Your cap table matches your shareholder agreements. There are no contradictions.

Your IP Protection
Every founder, employee, and contractor has signed IP assignment agreements. You have proof that you own everything you claim to own. There are no disputes or unclear ownership situations.

Your Financial Records
Your books are updated monthly. All tax returns are filed on time. All TDS payments are made. Your financials match your bank statements. Your CA has given you clean certifications.

Your Compliance Status
All statutory registers are current. All board meetings are documented. You're compliant with Companies Act 2013. You're compliant with all applicable regulations for your industry.

Your Documentation
Everything is organized in a virtual data room. Documents are categorized logically. Nothing is missing. You can respond to any document request within 24 hours.

A Founder Who Got It Right

"We spent 4 months before fundraising just cleaning up our legal and compliance. Best money we ever spent. When due diligence started, we had everything ready. The investor's lawyer sent us 87 document requests. We sent 87 documents within 48 hours. Deal closed in 6 weeks. Our investor told us it was the smoothest DD they'd ever done."

— Priya, SaaS Founder, Bangalore

How Naraway Makes This Painless

We've helped 100+ startups get due diligence ready. Not after they got term sheets. Before they started fundraising.

Here's what we actually do:

Week 1-2: Complete Audit
We review everything. Legal structure. IP documentation. Financial records. Compliance status. We find every issue before investors do.

Week 3-6: Fix Everything
We don't just tell you what's wrong. We fix it. Draft missing agreements. File pending returns. Update registers. Clean up contradictions.

Week 7-8: VDR Setup
We organize everything investors will ask for. Create a clean, logical document structure. Make sure you can respond to any request instantly.

Week 9-10: Mock DD
We run a mock due diligence. Ask the same questions investors will ask. Make sure there are zero surprises.

Ongoing: Support During Fundraising
When you're actually fundraising, we're available to handle any DD questions. You focus on closing. We handle the paperwork.

Ready to Raise Without the Drama?

Stop worrying about due diligence. We'll make your startup investor-ready in 10 weeks.

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The Bottom Line

Due diligence isn't about checking boxes. It's about showing investors you run a real business. That you take governance seriously. That there won't be nasty surprises six months after they invest.

When 25% of deals fail at this stage, preparation isn't optional. It's survival.

The startups that close funding fast? They didn't wait until they got a term sheet. They fixed everything months before they needed it.

The startups that struggle? They're still scrambling to find that contractor who wrote their MVP in 2021. Still trying to figure out why their shareholder agreement contradicts their founders' agreement. Still explaining to investors why they can't produce board meeting minutes from last year.

The One Thing That Matters

You can have the best product, the best traction, the best pitch. But if you can't pass due diligence, none of it matters. Fix this first. Everything else follows.

You've built something real. Don't let paperwork kill it.

Why Indian Startups Lose FundingDuring Due Diligence